I've been getting some questions from students, residents, and new attendings about dealing with student loans and some of the changes that have taken place since I went to medical school. Now, I've never been an expert on student loans, since my grand total of undergraduate and medical school debt was a whopping $5,000. But I've decided to look into some of these issues in an effort to help out you readers.
First, a brief discussion of how I paid for my schooling. I took 7 steps to minimize my debt burden that I think most prospective physicians can take if they are willing to. I suggest all take at least some of these steps.
Choose an Inexpensive Undergraduate School
When was the last time someone asked what undergraduate school you attended? My patients don't even care where I went to residency, much less any of the previous steps. Now I'm no dummy, I've served on a medical school admissions committee. I know those committees are more impressed with a Princeton grad than a degree from Podunk State. But a 3.9 is a 3.9. I was generally more impressed with a 3.7 from a decent state university than a 3.1 from a prestigious university. Attending a junior or community college for a couple of years and then transferring is also a great way to keep expenses down. Public four-year colleges, on average, charge $7605 for tuition. ($2713 for junior colleges.) On the other side of the spectrum, private colleges on average charge $27,293 per year for tuition. Now, you can probably argue that the education is better at Brown University ($40K per year) than at the University of Texas ($10K per year.) But four times better? Hardly. My particular undergraduate institution, consistently ranked in the top 100 (and occasionally top 50) has a current tuition charge of less than $5000 per year. Many graduates go on to prestigious medical schools all over the country.
Take Advantage of Undergraduate Scholarships
If you're smart enough to become a doctor, you ought to be smart enough to get scholarships. Not only does an academic scholarship help you keep your debt load down, but it also forces you to keep your grades up, not a bad thing for a pre-med. In my case, I didn't pay tuition at all for four years.
Benefits of A Great Loan
Federal student loans, unfortunately, now suck. In an era when my credit card gives me 0% for 18 months and mortgages of 3.5% are available, it sucks to pay 6.8% for an education, especially when those who graduated just a few years earlier consolidated at 1.9%. I had an even better deal, although I confess it was due to my Alaska residency. In the 1990s Alaska's student loan program had a rate of 8%. But the terms were exceptional. The interest (and payments) were suspended while you were an undergraduate, a medical student, a resident, and a military member. So a $5K loan I took out in 1993, and paid off without having paid any significant amount of interest in 2010, essentially cost me $3K in 1993 dollars. Thanks to inflation, my student loan paid me to go to school. In retrospect, maybe I should have taken out more!
Work Your Way Through School
I busted my butt for four months a year working at least full time in the summers. I lived for the next eight months off those savings. I even had a few part-time jobs during the semesters. I kept my grades up, played intercollegiate athletics, and still managed to have a good time. It's not that big of a deal. In fact, one of the little known secrets of medical school is that you can continue to hold part-time jobs even as a medical student without hurting your education. I skiied 30 days a year for the first couple years of medical school. I didn't work then, but I sure could have. My fourth year I took a job doing H&Ps at an outpatient surgical center. It paid $20 an hour. It's not doctor pay, but it sure paid for a lot of living expenses.
Choose an Inexpensive Medical School
Sure, the cost of all medical schools has skyrocketed in the last decade, but some are still far cheaper than others. At the University of Mississippi tuition is less than $16,000 a year. At Tufts it is $54,000 a year. Again, do you really think the education at Tufts is worth over 3 times as much as at the University of Mississippi (and it'll be far more than that after the interest on those loans adds up.) Many pre-meds don't have much choice, since they only got in to one or two schools. But for those with a choice, choose wisely knowing those loans may be with you throughout your career. The price of tuition should be a MAJOR factor in your decision.
Benefits of Joining the Military for Medical School
Obviously, this isn't, and can't be, for everyone. In fact, I'm not even sure I'd do it again. But it's a great way to minimize medical school loans. For many specialties, you are trading money later for money now, since the military will pay you far less than you'd otherwise make until you've paid off your commitment. But for those going into primary care, and particularly for those attending expensive medical schools, the military and similar public service programs can be a great financial deal. (But don't choose it for the money.)
Lived within Your Means As Students and Residents
I was surprised to see other medical students taking out the maximum loans they could. Sure, I had a military stipend to live off of. But it was only $900. That didn't go far. My spouse worked some and I worked some and we lived off what we had. It was a tight budget. No additional loans for “living expenses.” Some people continue to take out loans even as residents! Trust me, if you can't live within your means on $40K a year you won't be able to do it on $200K a year. The lessons we learned living on $15K a year and $40K a year are key to our financial success today. Even those who are paying for medical school completely on loans can do what they can to minimize those loans. It also helps to choose a medical school and a residency in any area with a reasonable cost of living. It's tough to live on Manhattan on $40K.
Challenges Pre-Meds and Medical Students Now Face
Now, let's talk about the two problems facing our current pre-meds and medical students that I never had to wrestle with. First, the cost of attendance.
The rate of tuition inflation is unbelievable. The medical school I matriculated into 12 years had a tuition of $10K a year. That tuition is now $15,000. The University of Colorado charges it's out of state students $82,000 per year. I remember not applying because it was $50K 12 years ago. Even without living expenses, four years of $82K loans means coming out of school with well over $300K in debt. Add in living expenses and interest and that amount could easily be half a million bucks by the time a doc gets out of residency. That's nuts.
Unsubsidized Student Loans
The second factor comes from the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA.) It sounds good from the title, but it has really hosed over medical students. It used to be that you would graduate from medical school with a bunch of different loans at different rates. Then, when rates went down, you would consolidate them all. Some of my classmates have their loans at 1.9%. ECASLA, however, makes it so you can only reconsolidate your loans at an AVERAGE of their rates. Well, that doesn't save you squat on interest. If this act wanted to really help you out, it would make student loans deductible even for high earners (currently phased out at $60-$150K.) To make matters worse, even subsidized Stafford loans are going to be issued at 6.8% starting a year from now. You can only take out $8500 a year in subsidized Stafford loans. Everything else will be accumulating interest (at 6.8%) throughout medical school, residency, fellowship etc. Using the rule of 72 you'll quickly see that your loans will basically double over a decade of training. So, $8500 a year in subsidized Stafford loans, plus another $12,000 in unsubsidized Stafford loans. That won't go far toward that University of Colorado tuition. Now you'll be looking at Grad Plus loans (currently 7.9%). You'd think you were a subprime mortgage buyer with a bad coke habit with that interest rate. Other private loans are also available, but probably require a co-signer. You might be able to defer payments, but not the accumulation of interest. No wonder some students run up so much credit card debt, it isn't that much worse than what's being offered for “good” loans! Oh, and to make things worse, the subsidized Stafford loans are going away. Next year they'll all be unsubsidized.
Financial Impact on Doctors
What does this all mean? It means several things, especially when combined with the lower incomes that will likely be available to physicians in the future. First, doctors will take much longer to reach financial independence, and early retirement will be much more difficult. Second, doctors will have to live a much lower lifestyle than they have in the past, at least until loans are paid off. Your partner may have bought a BMW and a big house a year out of residency and been able to afford it 10 years ago. If you now have $600K in student loan debt at 7%, guess what, you can't. Third, access to primary care will become more difficult as medical students simply can't afford (and certainly don't want) to only make $80-150K after a decade of training. This will mean more fractured care, more expensive care, and more inappropriate use of emergency departments and other specialists.
There's not a lot an individual doctor can do about all this. You can take some of the steps I outlined above to minimize your debt. You can live like a resident and pay that debt down as soon as possible. You can choose a higher-paying specialty (if you're one of the few who enjoys more than one equally). You can also take advantage of the Income Based Repayment and Public Service Loan Forgiveness programs I'll discuss in the next two posts in this series.